The Reagan Revolution Rightly Perceived

Marc Eisner’s reflections on the Reagan Revolution are based on solid evidence. He follows in a long train of similar expose’s of the 40th president’s record respecting government growth and makes some additional serious charges. Most damning is the charge that the growth seen during Reagan’s time was really the result of Keynesian fiscal stimulus and not founded on principles consonant with ideas about limited government and free markets.

I would like to take issue with that on two grounds.

Firstly, the usual approach to understanding stimulus had already run aground in the phenomenon called stagflation by the time Reagan took office. Up till then both sides of the stimulus band wagon, monetary and fiscal, were going exactly nowhere because the basic transmission mechanism was burned out. I’d go further and say, not only the transmission, but the carburetor was hopelessly gummed up by some serious levels of uncertainty.

Secondly, I would say that those who hold Congress responsible are only 1/3 right. Those who hold the president, likewise, only 1/3 right. The other unsung part of the problem is a bureaucratic nightmare of byzantine proportions spawned by the rules and regulations of all the many federal agencies in Washington D.C. (you might think of this as the Court’s failure since they allowed this development to occur).

The population of all the boards and bureaus that populate the capital is equivalent of a medium size city all its own. The interests that comprise this population are constantly shifting their configurations with respect to whatever reforms are offered by whatever branch of government, and a push here means simply that something else bulges there. Nothing short of a unified front of all branches has any hope of accomplishing a real excision and demolition of these agglomerations of power.  

Under these circumstances, something very critical was done by Reagan that has nothing to do with stimulus, but is actually quite deserving of the appellation, revolutionary, and it was completely consistent with the ideals of limited government and free markets.

The current Federal Code runs to some fifty volumes plus. This is the list of laws passed by Congress. The Federal Registry runs to well over 200 today. That is the list of all the rules of all the various federal regulatory agencies. Four times the number of laws actually passed by the legislative branch!

So complicated are these rules with their various overlapping jurisdictions that it takes an army of lawyers to know what is even approximately there. That fact gives enormous discretionary powers to agency heads. When rules become so complex as this, those who are regulated have no choice but to rely on the regulators themselves to tell us what they mean. That is not something one can plan for in the determination of investments.

There is only one time that this body of rules was appreciably decreased of which I am aware. Rothbard criticizes Reagan for allowing an increase in the overall number of agencies on his watch, but the macro aggregations can only tell you so much. The real devil is to be found in the details and quality of the specific regulations all those agencies promulgated.  Under Reagan the number of rules was actually slashed–nearly in half. In his Wall Street Journal article of February 10th, Arthur Laffer noted that the number went from over 80,000 in 1980 to about 48,000 in 1986.

All the stimulus in the world won’t matter a wit where the rules governing investment foster uncertainty. Add stability and reduce complexity and then give people greater control over their earned incomes and you have the real source for prosperity in the Reagan years.

Yes, the take increased, but it did so largely in areas where the rules could be well established in statutory form, so-called “loop holes,” and where individual planning could then take reasonable accounting of them in determining future investments. In other words, as much as I dislike any takings, it is best to do it in ways that do not at the same time enhance uncertainty. That is a lesson consonant with the rule of law, limited government, and markets rightly understood. A lesson we have, unfortunately yet to learn.

5 thoughts on “The Reagan Revolution Rightly Perceived

  1. So, all that bravado, all the hubris, and all that was accomplished was knocking the fine print back a bit? It’s a good outcome, but it’s not exactly a *big* one. I’d rather have more fine print and less government spending.

    1. It’s true that in some cases more detailed regulation can be superior to vague regulation that leaves much to the discretion of the regulator…

  2. It is useful to note that the reduction in rules was significant, it was also temporary. The average number of pages in the Federal Register under Carter was 72,843. This fell rather dramatically under Reagan, reaching a low of 47,418 pages in 1986. But then the number of pages began to grow (once again) and by the last year of George H.W. Bush’s presidency, we were at 62,928 pages. By the end of the Clinton presidency, we were at levels exceeding the Carter averages and then…George W. Bush broke the 80,000 page mark in his second year in office.

    The number of pages in the Federal Register is a rather poor indicator of growth in the regulatory state. In terms of regulatory budgets, the US spent some $15.2 billion in 1980 (expressed in 2005 dollars) and a decade later, this had risen to almost $19 billion. By 2000, it reached $28.7 billion and by the end of the Bush II presidency, it stood at $46.3 billion. Once again, these numbers are adjusted for inflation. Bottom line: the regulatory state tripled in size (as expressed in constant dollars in spending) between the last year of Carter’s presidency and the last year of George W. Bush’s presidency. Reagan may have slowed the growth during his presidency, but evidence of revolutionary change….?

    For these and other figures, a great source is Susan Dudley & Melinda Warren, A Decade of Growth in the Regulators’ Budget: An Analysis of the U.S. Budget for Fiscal
    Years 2010 and 2011.

  3. It is always tempting to focus on the quantum because it conveys what is most immediately perceptible. Even the number of agency regulations, however, is just an approximation of the point being made here which concerns the quality and kind of governance being fostered by our bureaus and agencies. The more complex these regulations are, the more arbitrary is the quality of powers being exercised.

    America’s experiment in republicanism sought limited but energetic government; that is to say, it sought a government that would provide stable and consistent enforcement of specified written constitutional provisions at both state and national levels.

    Congressional and independent agencies were innovations not foreseen. The dramatic reduction in numbers of rules under Reagan is an approximation for a reduction in complexity, and a concomitant reduction in arbitrary regulatory discretionary power.

    That Reagan was able to do this, even temporarily, given the enormous momentum of government growth, is indeed revolutionary, because it reminds us of what we mean by the rule of law.

  4. Also. Paul Volcker, with Reagan’s support, brought inflation under control reducing the burdens of this silent tax.

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